May 9, 2017

Illinois and New York Rescue Nuclear Plants; Other States May Follow

May 9, 2017

Illinois and New York approved as much as $10 billion in subsidies to keep their nuclear reactors open for the next decade, limiting emissions that would have come from new fossil fuel consumption since natural gas plants would likely replace them.[i] Nuclear units are finding it hard to compete against low-cost natural gas. Five nuclear plants have retired over the past 5 years[ii] and several more have been announced. Even Diablo Canyon in California—a nuclear plant that the Nuclear Regulatory Commission ranks as one of the best in performance—is being shuttered after this decade supposedly to be replaced by renewable energy and efficiency programs. However, in reality, it is likely that they will be replaced, at least in part, by natural gas units as has been the case for other nuclear unit retirements.

Other states that may follow in Illinois and New York’s footsteps are Ohio, Connecticut, and New Jersey where nuclear units are providing most of the state’s carbon dioxide-free electricity. In Connecticut, the Millstone nuclear plant produces 98 percent of the state’s low-carbon power, and in New Jersey, nuclear reactors produce 97 percent.

Past and Projected Nuclear Retirements

The Fort Calhoun nuclear plant near Omaha, Nebraska was retired last year, following the retirements of Crystal River, Kewaunee, and San Onofre in 2013 and Vermont Yankee in 2014. Other nuclear plants whose owners have announced retirements include Exelon’s Clinton plant in central Illinois (by June 2017), its Quad Cities plant in northwestern Illinois (by June 2018), its Oyster Creek plant in eastern New Jersey in 2019, and Entergy Corporation’s Pilgrim plant in Massachusetts by June 2019.

In New York, the Fitzpatrick and Ginna nuclear plants could face retirement in 2018, Nine Mile Point in 2020, and Indian Point in 2020-2021.[iii] In addition, Pacific Gas and Electric announced that it will not seek license extensions for its Diablo Canyon nuclear power plant north of Los Angeles, California, retiring its two units in 2024 and 2025.

Illinois and New York Subsidize Nuclear Plants

The “Future Energy Jobs Bill”, as it is called by supporters, is providing Exelon and Commonwealth Edison with a $235 million annual credit to keep the Clinton and Quad Cities nuclear plants in Illinois operating and saving the state about 4,200 jobs. Utility officials indicated that the credit would cost residential customers with average bills no more than 25 cents per month. Nuclear power provides over 90 percent of Illinois’ zero-carbon energy.[iv]

In New York, residential customers will be paying an extra $1.50 to $3 a month, based on their electricity consumption, beginning in April as utility companies collect a state-mandated surcharge to keep three upstate nuclear power plants operating. The surcharge will cover $462 million in annual subsidies the state will pay to keep the Nine Mile Point, Fitzpatrick and Ginna nuclear plants operating. In Oswego County alone, where three of the four affected reactors are located, the subsidy will save over 1,500 jobs. The nuclear subsidies could total as much as $7.6 billion over 12 years. New York sees the subsidy as part of its plan to generate half its power without producing new carbon dioxide emissions over the next decade.[v] New York’s nuclear plants generate about 30 percent of the state’s electricity.[vi]

The Indian Point nuclear plant in Westchester County, New York, will not be receiving a subsidy because electricity prices are much higher downstate. Governor Cuomo, however, wants federal regulators to shut down Indian Point because he claims that it is unsafe to operate nuclear reactors in a densely populated area so close to New York City.[vii] But, without Indian Point, it is unclear how New York City’s demand for electricity would be met.

Reasons for Shuttering Nuclear Power Plants

A few years ago, it was assumed that most existing U.S. nuclear plants would easily obtain 20- or 30-year license extensions from the Nuclear Regulatory Commission (NRC), which would carry the bulk of the U.S. nuclear fleet into the 2040s and beyond. However, extremely long and uncertain reviews by the NRC have resulted in early retirements rather than life extensions. Two units at the San Onofre Nuclear plant in California were shuttered because the NRC did not grant life extensions after extensive work had been done on the units. Further, the NRC reviews took so long that the plant operators had to close the plant due to the expense of keeping the nuclear units in operating condition and purchasing power to replace their output.

Electricity deregulation also caused problems for nuclear plants. Merchant power plants, whose rates cannot be recovered through regulated cost-of-service rates, have found it difficult to compete with low natural gas prices and increasing regulations. The Kewaunee Power Station and the Vermont Yankee plant are both merchant plants that were forced to retire because of a number of financial factors, including low wholesale electricity prices driven in part by low natural gas prices, increasing capital costs for maintaining the unit, low prices in the regional market for electric generating capacity, and increased costs to comply with new federal and regional regulations.

Artificially low prices caused by the production tax credit for wind also played a role in the economics. Prior to this year when the subsidy has been lowered by 20 percent, wind producers were paid the equivalent of $35 per megawatt-hour (pre-tax income) in production tax credit subsidies. As a result, a wind producer could profit while paying the grid to take its electricity, producing negative prices. In times of low demand, nuclear plants can be forced to take the negative prices rather than go through the long and expensive process of ramping their output up or down.

Diablo Canyon’s two nuclear units are being shuttered due to environmental pressure. According to the NRC, these units are well run and are among the best in the country. They are able to withstand earthquakes, tsunamis and flooding. But, the utility company is being pressured to shutter them by environmental groups, who believe they are situated in a potential earthquake area and want them replaced with renewable energy and energy efficiency programs. Originally, Pacific Gas and Electric announced that rates would not increase with the nuclear plant closures. It now admits, however, that the closure would cost $1.77 billion, which will be collected over an 8-year period. Further, Diablo Canyon’s power will be replaced almost entirely by natural gas—not renewable energy.

Conclusion

Nuclear energy in the United States are closing mainly due to low natural gas prices and onerous regulations from the NRC. While subsidies should not normally be the answer, New York and Illinois have found the need to subsidize their nuclear plants to continue to receive carbon free electricity. Other states may follow in order to meet their greenhouse gas reduction goals.